More Older Americans Carrying Debt into Retirement

The paper, “Does Household Debt Influence the Labor Supply and Benefit Claiming Decisions of Older Americans?” by Barbara A. Butrica and Nadia S. Karamcheva, found that with older families, the median value of their debt increased between five and six times in the period examined, which was between 1989 and 2010.

“Americans are increasingly likely to have debt at older ages,” said Butrica and Karamcheva. “Between 1998 and 2010, the share of adults age 62 to 69 with any type of debt increased from 48 to 62%. Moreover, the median value of outstanding debt grew 68% over the same period—from $19,000 per person in 1998 to $32,000 per person in 2010.”

The paper also tracked how the average leverage ratio (defined as debt divided by assets) has changed over time for older Americans. Although older adults became more leveraged during the Great Recession, an increasing trend in indebtedness was evident even before the financial downturn of 2008. On average, debt consumed 10% of older adults’ assets in 1998, 14% in 2006, and 18% in 2010.

“Older adults with debt are significantly more likely to work and significantly less likely to receive Social Security benefits than their counterparts without debt. Nearly half of adults ages 62 to 69 with any debt work, compared with only a third of older adults without debt,” said the authors. “On the flip side, only 71% of older adults with debt receive Social Security benefits, compared with 78% of those without debt.” The authors found that differences in labor force participation and benefit receipt were similar, but larger, between those with and without mortgage debt, and similar, but smaller, between those with and without credit card debt.

The paper’s authors concluded that even controlling for other factors, having debt is positively and significantly correlated with individuals’ propensity to work and negatively and significantly correlated with their likelihood of receiving Social Security benefits.

“Those with outstanding debt are also more likely to delay fully retiring from the labor force and to postpone claiming their benefits,” said the authors. “Among the sources of debt, mortgage debt consistently has a stronger impact on labor supply and Social Security receipt than do credit card balances or other debts.”

Having a mortgage increases the likelihood of working by about 7 percentage points and reduces the probability of receiving Social Security benefits by 3 percentage points. Both effects were found to decline with age.

According the paper's authors, their data comes from the Health and Retirement Study (HRS), a large nationally representative survey of Americans age 51 and older that has been tracking households since 1992. In addition to detailed information on personal characteristics, employment, earnings, income and program participation, the HRS provides valuable information on financial assets, housing wealth, mortgage debt, credit card balances and other debt. Most of their analysis uses the 1998 through 2010 waves of the HRS.

The full text of the paper can be found here. Slides related to the paper can be found here.